Sales and Use Tax Annotations

Annotation 120.0490

(a) IN GENERAL

120.0490Sale of Object Code and Source Code. A firm transfers source code to original equipment manufacturers (OEM) together with the object code. The OEM has a limited license to incorporate the object code into bundled product which it sells. The OEM may not sell or license the object code as a stand alone. The OEM uses the source code to create and modify the object code in various versions of hardware and software environments and to provide support services for bundled products.

Generally, the charge for the object code is based on per unit or percentage of the sales price of the bundled product. The charge for the source code may be incorporated into the license fee of the object code or it may be a separate flat fee site license.

The transfer of the source code is incidental to the transfer of the object code and is necessary for the OEM to manufacture and distribute the bundled product. The charge for the source code is nontaxable. The fact that the charge may be separately stated does not affect this conclusion. 5/6/93.

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